Opinion
January 15, 1935.
March 25, 1935.
Banks and banking — Attachment of deposit account — Attachment after payment of check to depositor — Duty of bank to stop payment — Attachment of negotiable instrument — Notice by lis pendens — Act of June 16, 1836, P. L. 755.
1. Where a deposit account in a bank is attached after the depositor has received a check in payment of part of his deposit, but before payment of the check by its drawee, the attachment binds only the balance remaining in the deposit account and the contingent liability of the bank to the depositor in the event of dishonor of the check. [121-6]
2. In such case, the bank is not required to stop payment of the check, and if it is paid in due course by the drawee, the contingent liability of the bank is discharged by such payment, and the writ of attachment binds only the balance remaining in the depositor's account after the withdrawal. [123]
3. Service of a writ of attachment on the drawer of a check or other negotiable instrument does not prevent its negotiation, and the attachment is unavailing against a bona fide holder for value to whom it has been transferred before maturity. [124-5]
4. Liability on a negotiable instrument is bound by attachment of the obligor only if the instrument remains in the hands of a payee, or one not a holder in due course, until maturity. [125]
5. Aarons v. Public Service Building Loan Assn., 318 Pa. 113, followed. [121]
Argued January 15, 1935.
Before SIMPSON, KEPHART, SCHAFFER, MAXEY, DREW and LINN, JJ.
Appeal, No. 344, Jan. T., 1933, by First Penny Savings Bank, garnishee, from judgment of C. P. No. 1, Phila. Co., March T., 1929, No. 14290, in case of Joseph Melnick Building Loan Association v. Samuel Melnick et al., and First Penny Savings Bank, garnishee. Assignments of error sustained, record remitted for correction of amount of judgment.
Attachment execution proceeding. Before BARNETT, P. J., specially presiding.
The opinion of the Supreme Court states the facts.
Verdict directed for plaintiff and judgment entered thereon. Garnishee appealed.
Error assigned, among others, was direction of verdict for plaintiff, quoting record.
J. B. Colahan, of Townsend, Elliott Munson, for appellant.
Sylvan H. Hirsch, with him Joseph First, of Sundheim, Folz Sundheim, for appellee.
What was said at some length in Aarons v. Public Service Building Loan Association, defendant, and Integrity Trust Company, garnishee, 318 Pa. 113, on a judgment creditor's right under the Act of June 16, 1836, P. L. 755, to execution against deposits of money and debts, is in part applicable to this appeal. That statute defines the right with express limitations. The writ of attachment is, in effect, a suit against the garnishee bank by the defendant-depositor to the use of the attaching plaintiff. If the bank has any defense to the depositor's claim, it may be asserted against the attaching plaintiff.
What are the facts? Helen Melnick was a depositor in the garnishee bank. At or about 12 o'clock, May 13, 1929, she demanded payment of $8,000 out of her deposit of $8,007.87. The bank paid it by its check, signed by two officers, one, vice-president, and the other, treasurer. The check was drawn on an account maintained with another bank, The Pennsylvania Company for Insurances, etc., more than sufficient to pay the check. As a condition of receiving it, and when it was received, she signed on the back of it, inter alia, the following: "Endorsed and accepted as payment of withdrawal from account number 143046. . . ." She also signed and delivered another receipt stating that she "Received from [the garnishee] eight thousand dollars." The check was honored two days later by payment in due course through the clearing house. At two o'clock, May 13th, a writ of attachment was served on the garnishee bank. When those facts appeared, the learned trial judge directed a verdict for the attaching creditor. The bank's motion for judgment n. o. v. was refused and, after judgment was entered on the verdict, this appeal followed.
In Roig v. Tim, 103 Pa. 115, 117, we said: "The service of an attachment execution has the effect of an equitable assignment of the thing attached. It puts the garnishee in the relation to the attaching creditor which he had sustained to his former creditor. He may make the same defense to the attachment by evidence of set-off or of other equities that he might have made if sued by his original creditor."
If we apply that to this record, the writ of attachment, served at two o'clock, had "the effect of an equitable assignment of the thing attached"; it put "the garnishee in the relation to the attaching creditor which he [the bank] had sustained to" its depositor. But, when the writ came in, the deposit had been reduced to $7.87 by the withdrawal. Prima facie, at least, the small remaining balance was all that the statute could equitably assign. If, at two o'clock the depositor had brought suit, her withdrawal at 12 o'clock would have been a defense to her demand as to $8,000.
Appellant contends that the evidence shows that the depositor accepted the bank's check in complete discharge of so much of the debt, and not as conditional payment; that, by giving the receipt quoted above, and by agreeing also that she received the check "as payment of withdrawal," the bank made, and she accepted, an equitable assignment of the funds in the drawee bank (see Fourth Street Nat. Bank v. Yardley, 165 U.S. 634, 644 et seq.). On the other hand, the appellee, the attaching creditor, contends that the check and the writings signed by the depositor did not operate as an equitable assignment of the funds with the Pennsylvania Company; that the check was a conditional payment only (see McIntyre v. Kennedy, 29 Pa. 448; Shepherd v. Busch, 154 Pa. 149, 26 A. 363; Tibby Bros. Glass Co. v. F. M. Bank, 220 Pa. 1, 69 A. 280; Martin v. Strickler, 57 Pa. Super. 296), and that the bank was still the defendant's debtor in an amount including the $8,000 when the attachment was served.
Section 189 of the Negotiable Instruments Law, May 16, 1901, P. L. 194, "A check, of itself, does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check."
It is unnecessary to determine whether appellant's contention can be maintained, because we all agree that, even on appellee's theory of conditional payment, the writ takes no part of the $8,000, because the check was paid in due course. This will appear from analysis of the transaction in the light of well settled rules.
The depositor and the bank by agreement had reduced the drawing account to $7.87. The defendant could no longer draw against the $8,000. The bank was released from the obligation to honor her drafts for that sum. A novation was effected; the bank executed its negotiable instrument and she received it in discharge of the former contract. After the novation, the only liability of the garnishee to the former depositor (as to the $8,000) was contingent, depending on what happened when the check was presented for payment. The writ went against that liability, whatever it was, and against the admitted balance not withdrawn; if the check was honored, the writ took only the small balance remaining. We are dealing with a negotiable instrument. Such instruments "have a legal quality that renders the hold of an attachment upon them very uncertain": Kieffer v. Ehler, 18 Pa. 388, 391.
"The law is well settled, that a promissory note is liable to be attached before maturity in the hands of the maker at the suit of a creditor of the payee. Though not due, it is a debt within the meaning of the Attachment Laws, and, therefore, as between the payee and attaching creditor, it is bound by the service of the attachment on the maker; and if, after being attached, it remains in the hands of the payee until maturity, it is bound by the attachment as against all persons into whose hands it may thereafter come. But the attachment is unavailing as against a bona fide holder, or endorsee for value, to whom it has been transferred, before maturity, without actual notice of the attachment. The doctrine of notice by lis pendens is not applicable to such a case: Kieffer v. Ehler, 18 Pa. 388; Hill v. Kroft, 29 Pa. 186; and therefore, a subsequent holder is not affected with constructive notice of the attachment": Day v. Zimmerman, 68 Pa. 72, 74. The attachment does not make negotiation to a holder in due course impossible: Ludlow v. Bingham, 4 Dallas 47; Kieffer v. Ehler, supra; Day v. Zimmerman, supra; Bell v. Binding Mailing Co., 10 Pa. Super. 38; Holliday v. Porter, 80 Pa. Super. 194; N. I. L., section 57. These cases involved notes — direct obligations of the garnished makers — which had a maturity date. A check is a bill of exchange drawn on a bank payable on demand (N. I. L., section 185), but without a fixed date of maturity determining the time after which one may not become a holder in due course. Fulweiler v. Hughes, 17 Pa. 440, deals with the garnishment of the drawer of a check on which payment had been refused (N. I. L., section 61). The money was paid into court, where the issue was between the holder and the attaching creditor. It was a post-dated check, negotiated for value without notice before due, and it was held that, notwithstanding the attachment, the holder in due course could enforce the check.
The attachment in this case never seized any part of the $8,000 represented by the check. Liability on a negotiable instrument is bound by attachment of the obligor, only if "it remains in the hands of the payee [or one not a holder in due course] until maturity." Obviously, service of a writ on the obligor does not prevent negotiation (N. I. L., section 30; see Kieffer v. Ehler, supra, at 391). Nothwithstanding a writ of attachment, an endorsee, before maturity, or, in case of a demand obligation, within a reasonable time (N. I. L., section 53), may, therefore, become a holder in due course (N. I. L., section 52 and cases supra). The writ does not change the character of the instrument. In this case, during the period in which the check could be negotiated to a holder in due course, it was discharged, and, therefore, never came within the grasp of the attachment.
Appellee suggests that the garnishee should have stopped payment. But, as long as the check was out of its control, stopping payment would not have prevented negotiation (N. I. L., section 30). It might still go on, and, during a reasonable time (N. I. L., section 53), an endorsee might become a holder in due course (N. I. L., section 52 (2)). The Attachment Act did not increase the obligation of the garnishee; the effect of the attachment was simply to assign the defendant's rights to the plaintiff. The garnishee was not required to violate its engagement that the check would be honored in due course, or to change the nature of its obligation to the payee (N. I. L., section 61). When the writ was served, the garnishee would become liable to the defendant only if its negotiable instrument was dishonored. The check was not dishonored. The contingency did not occur, so there was no debt which the writ could grasp. Before it became an attachable debt, the liability was discharged by payment in due course by the drawee. The garnishee could rely on the negotiable character of the instrument. The statute preserved all defenses good against the defendant-payee; one was payment in due course by the drawee (who was not attached). Rockwell v. Silvara, 45 Pa. Super. 505, and Catanzaro v. Hellman Com. Trust and Savings Bank, 281 Pa. 468, 126 A. 812, cited by appellee, are not controlling; in both cases, all parties joined in paying the money into court and eliminated the garnishee from the legal problem (Riley v. Wirth, 313 Pa. 362, 169 A. 139, and cases cited, page 366). The question now raised did not require consideration.
The assignments of error, relating to the sum of $8,000 in question, are sustained. As there seems to be a small balance to the credit of the depositor, we must remit the record with instructions to correct the amount of the judgment accordingly.